Sunday, September 12, 2010

“Anyone who believes that exponential growth can go on forever in a finite world is either a madman or an economist.” – Kenneth Boulding

To a large degree, the very idea of something called "the economy" is coextensive with the idea of economic growth. When John Maynard Keynes wrote his General Theory, there was no reified entity called "the national economy." Adam Smith never used the phrase; neither did Karl Marx; nor did any of the neoclassical economists. Rather, the word "economy" refered simply to the process of individuals allocating scarce resources.

In fact, the first effort to analytically and statistically instantiate "the economy" as a holistic and unitary object probably occurred in 1928, with the first Soviet "National Accounts," which formed the basis for Stalin’s first Five Year Plan—arguably the first full-spectrum "national economic growth" plan ever put forth by a government. For capitalist economies, the idea of national income accounting was developed in the late 1930s by Simon Kuznets as a way to test the efficacy of Keynesian theories for generating aggregate economic growth.

Here's the key point of this mini-history: as a body of positive theory, modern macroeconomics is built around the normative assumption that what economies are supposed to do is grow. (And it’s not just economics: modernization theory in political science and sociology also assumed the viability of endless growth.)

This fundamental theorical assumption in the social sciences in fact merely reflects a similar set of assumptions at the core of modern politics: in a nutshell, modern politics in all countries in the world over the last century or so have been built around the normative assumption that endless growth is not just the solution to overcoming distributionist conflict, but also sustainable in perpetuity. In other words, the macro-political problem the planet now faces is underpinned by a fundamental theoretical problem: the very notion of "the economy" takes for granted the idea of an endless "more." Political will aside, political officials and policy intellectuals (to say nothing of businesspeople) literally don’t know how to think about an economy predicated on principles other than expansion and growth.